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The ability for arbitration to be used to resolve disputes is fundamental to international trade. It is in an increasingly popular way to resolve commercial disputes as the process is confidential and, in theory, offers a quicker and less expensive alternative to traditional court proceedings.

Given international arbitral determinations have been enforced by Australian courts in a wide variety circumstances, people should have greater confidence in using such proceedings to resolve disputes. At the same time, parties should be aware that they need to pay careful attention to any arbitration proceedings to be used to resolve disputes.

In Dampskibsselskabet Norden v Gladstone Civil [2013] FCAFC 107 the Full Court of the Federal Court of Australia held that a foreign arbitration determination could be enforced in Australia. According to the arbitral determination the respondent was liable to pay US$824,663 for demurrage plus interest and costs as laid down in the voyage charterparty.

The Court overturned the trial judge's decision that voyage charterparties are sea carriage documents. As such, section 11 of the Carriage of Goods by Sea Act 1991 (Cth) (which gives no legal effect to a sea carriage document for the carriage of goods to Australia if it precludes or limits the jurisdiction of Australian courts) could not be used to block the enforcement of overseas arbitrations in Australia.

The Court stated that the purpose of section 11 is to protect the interests of Australian shippers and consignees from being forced contractually to litigate or arbitrate outside Australia. This does not extend to protect those "from the consequences of enforcement of their freely negotiated charterparties subjecting them to the well recognised and usual mechanism of international arbitration in their chosen venue."

The Coeclerici decision – failure to make grounds of public policy

Here, in the course of arbitration the parties entered into a settlement agreement on the basis that the arbitration was suspended pending performance of the agreement. If breached, an immediate award by consent was to be entered. When one party failed to perform, the arbitrator made the consent award without allowing further substantive submissions.

Against action to enforce the award, the respondent claimed that it had been unable to present its case in the arbitration proceedings and that the award should not be enforced on grounds of public policy for a denial of natural justice. The court found that there was no basis for the argument as the respondent had ample opportunity to put its case before the arbitrators. Accordingly, the Court upheld the enforceability of the arbitration award.

The TCL decision – jurisdiction to enforce arbitration award

Cases concerning the enforceability of arbitral determinations have even reached the High Court of Australia.

Earlier in the year in TCL Air Conditioner (Zhongshan) Co Limited v The Judges of the Federal Court of Australia & Anor [2013] HCA 5, the High Court rejected a Constitutional challenge by the applicant that the Federal Court of Australia had jurisdiction to enforce an Australian arbitral determination.

The grounds on which the Federal Court can refuse to enforce an award as an order of the court under the International Arbitration Act 1974 (Cth) are very narrow. They do not include a refusal on the basis that the award includes an error of law. The appellant argued this was incompatible with Chapter iii of the Constitution (which vests the judicial power of the Commonwealth in the Federal courts) as it removes the independence of the Federal courts and gives arbitrators judicial powers.

The High Court found that the independence of the Federal courts is preserved in upholding arbitral awards as arbitral power is not judicial power. A court's decision is enforceable in its own right. In contrast, the enforcement of an arbitral determination by a court is enforcement of the binding result of the voluntary agreement between the parties to have their dispute resolved by arbitration rather than by a court where an appeal process is available.

The impacts for the Australian trading industry

The decisions give traders a degree of confidence in the use of arbitrations here and overseas to provide binding determinations of disputes. However, a necessary consequence of these decisions is that Australian traders need to pay careful attention to arbitrations conducted in Australia and overseas and to look at their own practices to ensure that they are fully aware of the terms of the arbitrations and recognise that they could be enforced. Importers, exporters, shipping lines and freight forwarders need to ensure that they carefully check any arbitration provisions in contracts and charters before accepting them. Further, Australian traders need to make sure that their insurance covers any liabilities on awards issued by arbitration and any legal costs associated with arbitration.

We will continue to provide any updates on these developments and would be pleased to assist in specific advice to members on their current and any future agreements in relation to arbitration as an alternative method to resolve commercial disputes.